7 Crucial Updates of Federal Student Aid Eligibility for Borrowers with Defaulted Loans

By Rachel Gordon

On April 6, 2022, the United States Department of Education announced its Fresh Start initiative, which the effects of defaulting on a student loan for borrowers who entered default before the COVID-19 related payment pause on federal student loan. Here, we’ll take a look at what you need to know about the new initiative.

Under the Fresh Start initiative, borrowers who defaulted on student loans before the pandemic payment pause can regain access to federal student loans. For many, this provides a new pathway to higher education that can provide opportunities for career growth.

Borrowers who previously defaulted on their student loans have access to income-driven repayment plans, making it easier for them to get back on their feet.

Under the Fresh Start Initiative borrowers who defaulted on their loans have a year to make a payment plan following the end of the COVID-19 payment pause on December 31, 2022. This provides borrowers with the time they need to gather information to help them get on a
payment plan that makes sense for their needs.

Students whose eligibility for loans has been affected by non-default issues (like failing to meet academic requirements) will still need to resolve their eligibility issues before receiving additional aid.

Loans that are eligible for the Fresh Start program include William D. Ford Federal Direct Loan Program loans (also known as direct loans), Federal Family Education Loan Program Loans (FFEL), and Federal Perkins Loans (Perkins loans must be served by the Department of Education’s Debt Management and Collections system in order to be eligible).

Borrowers currently with a default status, must sign an acknowledgement form that states their understanding of their loan terms under the Fresh Start initiative. Required verbiage for the “Fresh Start Form” has been released by the Department of Education.

At ECM, we work to provide your financial aid department with the service necessary to streamline your processes, getting your students the funds, they need fast. Our services include academic program analysis to determine financial aid eligibility, real-time student aid packaging, on-demand processing that makes sense for your school’s cash flow needs, and the development and review of cost of attendance budgets. Reach out to us today to learn how we can support your school’s needs.